The Claimant JSC Bank of Moscow ("JSC"), the fifth largest bank in Russia, claimed in its Particulars of Claim ("POC") that there had been an unlawful conspiracy to defraud it on the part of Mr Kekhman involving a number of companies in the JFC group ("JFC") which, it is alleged, he controlled.
The initial POC set out the unlawful acts relied upon and in support of its allegation of conspiracy to injure JSC, and that whilst the audit reports for the group as at June 2011 showed net assets of US$218m, the balance sheet which was made available to creditors in September 2012, showed net liabilities of US193m for which there was no legitimate explanation. JSC therefore inferred that the reason for the reduction in the value of the assets was that those assets had been disposed of or diminished for no or no adequate consideration. A number of substantial dispositions of funds from JFC companies to other companies controlled by Mr Kekhman were also referred to.
Subsequently, JSC sought to amend its POC to allege that fraudulent misrepresentations were made to it to induce it to make loans of US$150m to JFC. In terms of the involvement of Mr Kekhman in the alleged fraudulent misrepresentations, it was contended that the role of two individuals pivotal to the operation of JFC was to implement Mr Kekhman's instructions and account to him.
The proposed amendments pleaded that to the extent misrepresentations were made to JSC, they were made by or on the instructions of a Mrs Zakharova and it was to be inferred that this was done on the direction of and/or with the knowledge and approval of Mr Kekhman.
The Judge initially refused permission for the amendments principally on the grounds that JSC had failed to provide particulars of the instances of control by Mr Kekhman of the relevant companies from which his participation in the fraud was said to be inferred and that instances of control relied on needed to be specifically pleaded. Further, JSC had to clarify whether it was alleged that the JFC employees (Mrs Zakharova and Mr Afanasiev) were implicated in the fraud.
Thereafter, JSC produced a further amended POC which set out particulars of the allegation of the role of the two individuals, Mrs Zakharova and Mr Afanasiev, being, it was alleged, to implement Mr Kekhman's instructions. Mr Kekhman then sought particulars of JSC's case and JSC confirmed that it was part of its case that Mrs Zakharova was a party to the fraudulent conspiracy and to the fraudulent misrepresentations made to JSC.
The court subsequently heard JSC's application for permission to amend its POC to include allegations of fraudulent misrepresentation with Mr Kekhman's application to resist the amendments and strike out/obtain summary judgment on the existing pleading.
In support of his application, Mr Kekhman claimed that JSC had failed to plead the allegations of fraud adequately in relation to the existing plea of conspiracy and proposed plea of fraudulent misrepresentation and relied on the decision in Three Rivers District Council v Bank of England. In Three Rivers the Court held that a claimant who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest rather than merely negligent.
Mr Kekhman contended that there was no proper plea of fraud unless the particulars pleaded were consistent with dishonesty and even if, contrary to his primary assertion, the pleading satisfied the Three Rivers test, JSC faced insuperable evidential difficulties such that it had no real prospect of success at trial.
The Judge found that Mr Kekhman had exaggerated the requirements for a successful plea of fraud. The correct test was whether on the basis of the principal facts pleaded, the inference of dishonesty was more likely to be drawn than one of innocence or negligence. At an interlocutory stage, the court could not concern itself with whether there would be sufficient evidence at trial to establish fraud but only whether the facts as pleaded were sufficient to justify a plea of fraud. If it did, then the case would proceed to trial and the trial judge would decide the case on the evidence before him at trial. He therefore held that it was not necessary, where a Claimant is seeking to draw an inference from primary facts, to plead facts which are only consistent with dishonesty and the proposed amendment contained sufficient particulars of conspiracy and fraudulent misrepresentation. Mr Kekhman's application was therefore dismissed.
It is often necessary to make an allegation of fraud at an early stage in an action when the full facts are not known and only limited material is available and this decision is helpful in demonstrating the extent to which it is necessary to plead facts and matters in a case when seeking to draw an inference of fraud from principal facts.